FSF Annual Meeting presentation and address to unit holders

ANNUAL MEETING
11 NOVEMBER 2019

Chairman
FSF Management Company

2
John Shewan
John Shewan
John Monaghan,
Miles Hurrell
John Shewan
Kim Ellis
John Shewan

3
•Disappointing and unsatisfactory result
•Significant decline in unit price
•No distribution
•Fonterra progressing its business reset
•The role of the board of the Manager of the Fund

4
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
Aug 18Oct 18Dec 18Feb 19Apr 19Jun 19Aug 19Oct 19
Interim
Quarter
One
Full
Year
•FY19 balance date
Down 26%, from $5.12 to $3.77
(1 August 2018 –31 July 2019)
•Release of FY19 results
Down 32%, from $5.12 to $3.50
(1 August 2018 –26 September 2019)
•As at 25 October
Down 19%, from $5.12 to $4.15
(1 August 2018 –25 October 2019)
Quarter
Three
Balance
Date

5
Units on Issue¹:0.6m
Fund Market Capitalisation¹:70m
Fonterra Market Capitalisation¹:1.7b
Fund Size¹
,
²:0.04%
Unit Price 12-month High/Low³:
(26 Oct 18) / (28 Aug 19)
1.At 25 October 2019, relative to 25 October 2018.
2.Fonterra Shareholders’ Fund units on issue as a percentage of Fonterra Co-operative Group shares on issue
3.12 month period, 26 October 2018 –25 October 2019.

6
1%
14%
8%
25%
52%
0%
7%
12%
15%
66%
Other
Private Wealth
Management
Farmer
Shareholder
Institution
Retail
20192018
3%
7%
18%
72%
2%
3%
12%
83%
Other
United States
Australia
New Zealand
20192018
•Reduction in institution and private wealth holdings picked up by retail investors and farmer
shareholders
•Majority of register held in New Zealand, with further reduction in offshore holdings
Note: Register data for 2018 and 2019 is as at 30 September.

7
(Normalised)
¹¹
EBIT$819m$950m$1,100m
NPAT²$269m$650m$800m
Capital Expenditure$600m$500m$500m
Free Cash Flow³$699m$900m$1,050m
Debt/EBITDA4.3x2.5-3.5x2.5-3.5x
Return on Capital5.8%8.5%10%
Earnings per Share17c40c50c
1.Therecanbenocertaintyofoutcomeinrelationtothematterstowhichtheseplansorforward-lookingstatementsrelate.Theyinvolverisks,uncertainties,assumptionsandotherimportantfactors(someof
whichmaybeoutofFonterra’scontrol)thatcouldcausetheactualoutcomestobemateriallydifferentfromtheresultsexpressedorimplied.Noassuranceorguaranteeisgivenastothelikelihoodof
fulfilmentofanysuchstatementorprojection.
2.Excludesamountsattributabletonon-controllinginterests.
3.Forcomparativepurposesdivestmentsproceedshavebeenexcludedfromfreecashflow.

Chairman
Fonterra Co-operative Group

10

11
OUR PEOPLEINCREASING COMPETITION
INNOVATION,RESEARCH&DEVELOPMENTCONSTRAINED CAPITAL
SCALE&EFFICIENCYLARGE ASSET BASE
PASTUREBASEDFARMINGMODELHIGH DEBT LEVEL
LOW GREEN HOUSE GAS EMISSIONSLACK OF TRUST & CONFIDENCE
GLOBAL SUPPLY CHAINBIG PART OF NEW ZEALAND
PRODUCT & MARKET OPTIONALITYENVIRONMENTAL INVESTMENT COSTS
FOOD SAFETY & TRACEABILITYRECENT UNDER PERFORMANCE
AOTEAROA NEW ZEALAND
CUSTOMER RELATIONSHIPS

$160 million decrease in
operating expense by FY20
Reduce capex by $200 millionReduce debt by $800 million
Gearing within 40-45% range
by year-end
Down 0.2%
12

13
July 2018
•John becom es Chair
August 2018
•Miles appointed
interim CEO
September 2018
•Portf olio Review
•3 point plan
October 2018
•Drop our volum e
am bition
March 2019
•Sale of Corporation
Inlaca (Venezuelan JV)
November 2018
•Board announces f ull
review of strategy
May 2019
•Sale of Tip Top
•Decision to close Dennington site
in Australia
•Strategic review of China Farm s
investm ent
•Review options of DPA Brazil JV
September 2019
•Announced sale of 50%
stake in DFE Pharm a
•Announced sale of f irst
parcel of Beingm ate
shares
•Announced new strategy
and operating m odel

14
14

High protein
inspired by breast milk
33% of an adult’s daily calcium needs
in Kiwi
kids’ diets
healthy drinks and snacks
15

16
16
Production
(LMEs bn) 2018¹
Consumption
(LMEs bn) 2018¹
1.Volumes represented by the relative size of the circles displayed.
2.Includes all 12 South American countries including Brazil, Chile, Argentina and Uruguay.
Source: International Farm Comparison Network (IFCN)
South
America
2
New
Zealand
Australia
India
Russia
China
Rest
of Asia
Middle East
and Africa
Europe
(ex. Russia)
US

17

Chief Executive Officer
Fonterra Co-operative Group

From 10 cpsFrom $6.69
per kgMS
FARMGATE
MILK PRICE
From 6.3%From $196m
Cents per
share
DIVIDEND
RETURN
ON CAPITAL
per cent
NET LOSS
AFTER TAX
million
19

DPA Brazil
China
Farms
Venezuela
Fonterra NZ
Australia
Ingredients
Beingmate
Other
FY18
Normalised
NPAT
FY18
5 cent Milk
Price Change
FY19
Lower Operating
Earnings After
Tax
FY19
Normalised
NPAT
FY19
Impairments
and One-off
Items
FY19
Net Loss
After Tax
20
Net Loss
Attributable to
Non-controlling
Interests
FY19
Reported Net
Loss After
Tax

From 10 cpsFrom $20.4 bn
billion
REVENUE
From $3,152m
million
GROSS
MARGIN
From $2,496m
million
OPERATING
EXPENSES
From $902m
million
EBIT
cps
DIVIDEND
21

FY18 Year-EndChange in FY19FY19 Year-EndAnnounced FY20
Divestments¹
Change in
FY20 (Forecast)
FY20 Year-End
(Forecast)
Key drivers
•Improved earnings
•Lower capex
•Other divestments
•DFE Pharma
•foodspring™
Key drivers
•Lower capex
•Divestment of Tip Top
•No dividend
Offset by
•Lower earnings
22

23
23

24

25

26
Forecast
MilkCollection
Forecast
Farmgate
Milk Price
Forecast Earnings
per Share
cents
per kgMS
million kgMS

27

Confidential to Fonterra Co-operative Group
28

RE –ELECTION OF
KIM ELLIS

31
•To re-elect Kim Ellis, who retires by rotation and stands for re-election, as a
director of the Manager of the Fund.

32
As at 10am Saturday 9 November 2019
AGAINSTDISCRETIONARYFOR

Director
FSF Management Company

34
•To re-elect Kim Ellis, who retires by rotation and stands for re-election, as a
director of the Manager of the Fund.

35
•In respect of the resolution, please tick the “for”, “against” or “abstain” box.
•Once you have completed your voting, please place your vote in a ballot box.
•Please raise your hand if you require a pen.
•Results will be announced to the NZX and ASX as soon as they
areavailable.

ANNUAL MEETING
11 NOVEMBER 2019

---

FONTERRA SHAREHOLDERS’ FUND
ANNUAL MEETING
MONDAY 11 NOVEMBER 2019

FONTERRA SHAREHOLDERS’ FUND CHAIRMAN’S ADDRESS
Fonterra’s financial performance continued to be very poor in FY19. The unit price is down
markedly and no distribution was paid. This is disappointing and frustrating for the Fund’s unit
holders. Fonterra’s farmer shareholders have experienced the same unsatisfactory result from
their shares in Fonterra.
A series of significant steps are being taken by Fonterra to right this but the turn-around will
take time. The plan to reset the business has seen the Fonterra Board and management take
an end-to-end look at the entire operations, including re-evaluating all investments, major
assets and partnerships.
I can see good progress has been made. This can be seen in Fonterra’s financial discipline,
with significantly lower operating and capital expenditure, reduced debt and improved cash
flow.
John Monaghan and Miles Hurrell will speak to the changes within the business as well as the
2019 performance in more detail shortly.
First though, some comments on the role and responsibility of the Manager of the Fund.
The Board of the Manager of the Fund has statutory responsibilities for the activities of the
Manager and the Fund, including monitoring compliance with regulatory requirements and
ensuring that unit holders’ interests are managed and protected in accordance with the
constituent documents that relate to the Fund. Directors have no role in the governance or
operation of Fonterra.

Skills required of a director on the Board of the Manager include governance experience,
preferably of a listed entity, financial and capital markets knowledge, an understanding of co-
operatives, and risk management experience.
While we have no decision-making role in relation to Fonterra’s governance or operations we
do consider it appropriate to represent the interests and views of unit holders to Fonterra and
we do that.
We have had several meetings over the last year with Fonterra management and in some
cases Fonterra board members.
I will now address this year’s performance.

I understand and share the frustration that you rightfully feel, and the impact that Fonterra’s
decisions have had on the unit price.
Fonterra’s decision to not pay a dividend, and therefore a distribution to unit holders, as well
as significantly impairing a small number of significant assets no doubt came as a surprise to
many of you.
The Fonterra Board’s decision not to pay a dividend for the last financial year was part of their
stated intention to reduce the Co-op’s debt, which is in all of our long-term interests.
The unit price finished the financial year down 26% at $3.77, from $5.12.
On a more positive note, it has been pleasing to see Fonterra execute well on its asset sales
– allowing for good progress to be made on deleveraging.
Furthermore, it has increased disclosures, such as the quarterly earnings breakdown and its
3-year and 5-year plan. In addition to the increased disclosures, Fonterra has provided the
new strategy direction. This progress has aided in the improved market sentiment – especially
the move to drop its volume ambitions and focus on value.
As at close of market Friday 8 November, the unit price had increased to around $4.18. This
does not excuse the significant decrease in the unit price over the past couple of years, though
it does likely reflect the markets’ acknowledgment that the Fonterra Board and management
are focused on turning Fonterra’s performance around.

Notwithstanding the improved market sentiment, I believe it beneficial to see more detail on
the strategy. There are still many questions on what the business will look like in the future
and receiving greater detail on the strategy in FY20 will be instrumental in helping unit holders
and farmers looking for more accountability, and more clarity on where Fonterra’s equity
valuation might settle.

Moving on to discuss some of the key Fund statistics.
Over the past 12-month period, the units on issue have reduced slightly, by just over 0.6
million, to 102 million units on issue. During the 12-month period units issued peaked at 111
million units on issue during late January. This was predominantly due to farmer share
compliance requirements, I will cover this in more detail shortly.
Because of a lower unit price and fewer units on issue the Fund’s market capitalisation has
declined this year, down $70 million to $424 million – as at 25 October.
As well as the need for greater detail on the strategy and clarity on Fonterra’s future earnings
outlook, the relatively small size of the Fund’s market capitalisation has potentially reduced
interest from larger institutional investors.
The unit price 12-month low of $3.15 in late August is also the lowest in the history of the
Fund. Earlier that month Fonterra had announced to the market it would be making one-off
accounting adjustments of $820-860m and confirmed there would be no dividend for FY19.
As at close of market Friday 8 November, the unit price had increased to around $4.18,
representing a 33% increase on the 12-month low.

As alluded to earlier, institution and private wealth holdings reduced over the year as
Fonterra’s financial performance continued to be poor. They were also waiting for greater
clarity on Fonterra’s strategy and earnings outlook.
Institutions declined from 25% to 15% and private wealth declined from 14% to 7%. This
volume was picked up by retail holders and farmer shareholders, increasing by 14% and 4%
to 66% and 12% respectively.

While we have seen improved sentiment, Fonterra now needs to meet, and continue to meet,
key milestones to regain confidence in it as an investment proposition.
As mentioned, farmer shareholder unit holdings increased over the last year. The two primary
reasons for the increase are somewhat of a dichotomy.
The first reason relates to farmers who have reached the upper limit of non-supply backed
Fonterra shares they can hold, but know, for varying reasons, that they will be required at
some time in the future to purchase additional shares for future share compliance
requirements. It appears that due to the historically low unit price, a number of these farmers
have proactively acquired units which they will be able to transfer to shares when required.
The second reason relates to farmers who have ceased to supply Fonterra. They are in
varying stages of the mandatory 3-year sell down period of their Fonterra shares. However,
not wanting to exit the Co-op at the current price, they have opted to convert their shares to
units. Some of these farmers would have only been required to sell the first third or second
third of their shares. However, they have opted to convert all of their holdings in one go to
units. This is likely to be the primary driver of the increase in the units issued to 111 million we
saw in late January that I mentioned earlier.
It is also possible some of these farmers may simply be choosing to hold units as they want
to remain connected to the Co-op.

Turning now to the outlook for the Fund.
As you know, the Fund’s performance is tied inextricably to Fonterra’s performance.
Which is why the 3-year and 5-year plan Fonterra released as part of its FY19 Annual Results
was well received by the market.
You can see from the table that the metrics Fonterra is using to measure performance will
emphasise cash flow and value creation. In particular, it is good to see a focus on Free Cash
Flow, which is the net cash flows from operating activities less cash flows from investing
activities. It represents the amount available to pay interest, dividends and reduce debt.
Fonterra has based its 3-year and 5-year plan around getting the basics right, including strong
financial discipline. We saw this resolve during the year as Fonterra reduced its debt, capital

expenditure and operating expenditure – which included the decision not to pay staff bonuses
for the 2019 financial year.
I am encouraged by the positive intent and direction Fonterra is showing but also note the
complexity of the task ahead, with FY20 seen as a year of transition.
Now is the opportunity to hear directly from the Chair and CEO, and to ask them questions.
Thank you, I now invite John Monaghan, Chairman of Fonterra, to address the meeting.

FONTERRA CHAIRMAN’S ADDRESS
FY19 was a year of significant challenge and change within our Co-op as we continued to
fundamentally change the culture and strategy of our organisation.
It was also another tough year of significant change for our farmers with:
• The Government’s policy announcements on climate change and freshwater,
• The impact that the Reserve Bank’s proposal to tighten capital reserve rules had on
the banks’ willingness to lend,
• And the continued response to M-bovis, which is still having a real impact on our
industry.
Our decision not to pay a dividend and significantly impair a number of assets came as a
surprise to many of you.
I understand and share the frustration that you rightfully feel. We are well aware of the impact
that our decisions have had on our share price – even if the share price has started to show
some signs of recovery.
We don’t make impairments lightly. Once made, most cannot be fully reversed. But they were
the right decisions.
The Board’s decision not to pay a dividend for the last financial year was part of our stated
intention to reduce the Co-op’s debt, which is in all of our long-term interests.

Our unit price finished the financial year down 26% at $3.77. Its continued recovery will be a
priority for us in FY20.
There’s no question about it, it’s been a tough year.
We always knew it was going to be, and should be pleased with the progress we’ve made.
That sounds strange for a year in which we made a record loss of more than $600 million.
But it’s real.
I’m confident that when we look back at 2019 a few years from now, it will be to mark the
beginning of another period of success for our Co-op.

The Co-op is almost 150 years old. The decisions and progress we’ve made this year will help
to ensure it’s here for another 150 years.
We started to fundamentally change our Co-op by looking at our purpose.
We did a lot of listening.
What we heard was that the Co-op’s intergenerational success was what motivated people.
They see the Co-op as a family that needs to contribute to three outcomes: healthy people, a
healthy environment, and a healthy business.
We took two things from our Purpose work.
First, that this Co-op is not broken.
We hear a lot about the Beingmates and China Farms, so it’s important to bring some balance
to those conversations.
We have a Milk Price that is consistently on-par with our peers in Europe and the US. It was
less than half that previously.
We have a four billion dollar revenue business in China.
We now account for 40% of dairy imports into Mainland China.

We’ve built a two billion dollar Foodservice business from pretty much scratch in less than 5
years.
The Co-op wasn’t broken. But it did need to change.

We needed to take the best things from the past and adapt them for the future.
The second lesson we took was that we needed to do more listening.
When we listened to our unit holders, farmers customers, partners and other stakeholders,
they told us that they wanted to be part of our Co-op, but that we needed to show up differently.
Our new purpose is already guiding our decision making, culture and behaviour as an
organisation.
It’s important to your Board that you judge us by our actions, more than our words.
When you look at our key milestones for the year, you see a Co-op doing what it said it would.

Last year I was humbled to stand up at this meeting for the first time as your Chairman.
We signalled that day that there would be fundamental change in the Co-op, and you wouldn’t
die wondering.
We have delivered on that commitment.
We set ourselves a target to reduce our debt by $800 million. With the addition of the proceeds
from the sale of DFE Pharma, which was completed outside the reporting period, we will put
more than a billion dollars towards debt reduction.
Our average capital expenditure for the past six years has been more than $1 billion. This year
it was $600 million.
We said we would have more respect for your invested capital and live within our means.

We have reduced our global headcount by more than 1,400 people, frozen salaries for our
people earning over $100,000 and decided not to pay performance bonuses for the financial
year.
We’ve made a good start, but we have more to do.

We also said we would take a clinical look at everything – every business, every asset and
partnership. There would be no sacred cows.
We used the word clinical for a reason.
Our portfolio review is not a fire sale. We know that, among other things, you will measure us
by how well we divest some of our assets.
Our portfolio review identified assets and partnerships that were either no longer core to our
strategy, or had run their course.
One of the first decisions we made was to sell Tip Top.
We knew it wouldn’t be a popular decision with some of you, but it was the right call.
Was it an iconic business? Yes.
Was it on strategy and a key part of our future? Definitely not.
Once we took the emotion out of the process, making that call was easy.
We divested it as a mature asset for a great price.
Its new owner, Froneri is doing a good job of looking after the people who used to work for us
– they kept their jobs as part of the deal.
And we’ve used the proceeds to help reduce our debt levels and give us more options for the
future.
We also sold our interest in our Venezuelan consumer joint venture, Corporacion Inlaca, and
our 50% share of DFE Pharma – our joint venture with FrieslandCampina.

We are considering our options for our ownership of our China Farms, Dairy Partners
Americas which is our joint venture in Brazil, and have begun the process of selling-down our
18.8% shareholding in Beingmate.
That’s a hell of a year by anyone’s standards, but it’s really only half of the story.

Developing our new strategy was a key priority for the Board and senior management in FY19.
As I said earlier, we started by thinking about what we have learned from past decisions and
agreeing what we want our Co-op to stand for today.
18 months ago, we may have said we’re a global diary giant here to make a difference in the
lives of two billion people, through a volume ambition of 30 billion litres of milk by 2025.
Today, we stand for value.
We’re a New Zealand dairy farmers’ Co-op, doing smart, innovative things with New Zealand
milk to create value for our owners, customers, and our communities.
It sounds simple, but when you see yourself in a totally different light, it leads you to make
fundamentally different choices.
One of the first and most significant decisions we made was to drop the volume ambition. Its
impact should not be underestimated.
The clearest example of this is when you look at what we used to call ‘global milk pools.’
To meet our old volume-based ambition we needed to grow our milk volumes by around 35%
over the next five years.
Realistically, very little of that would have come from milk growth in New Zealand.
Which leads you to invest in overseas milk pools and the people, infrastructure and operating
costs that come with them.
With that driver gone, we are prioritising our New Zealand milk and only looking to our global
milk sources when needed.

Scale ingredients have always been the engine room of the Co-op.
Our new strategy builds off that by increasing our targeted research and development, energy
and investment into our medical nutrition, sports, and active nutrition products that are
performing well and have strong growth potential.

Alongside that, we want a leaner consumer business that is focussed on the customer - the
products, places and formats in which they want their dairy.
Our Foodservice business is already the leader in China, we want to push out further to lead
in Asia Pacific and form new partnerships to help us expand into other markets without the
need for large amounts of capital.
With our new strategy comes a new investment culture.
We want to first do the basics right and return our balance sheet to a position of strength. That
will give us options to go for the opportunities that we create in the future.
We have more big strategic decisions ahead of us this year, but I’m very confident in the
progress our Co-op is making, and very optimistic about our future.
We have a turned the corner and should lift our heads.

Looking ahead to 2020, we are seeing is a global supply and demand picture that is largely in
balance.
Demand for whole milk powder has been firm, and for the full season we’re expecting it to be
above last year.
Global whole milk powder production is down year to date and expected to continue to
decrease for the remainder of the calendar year.
We are also continuing to sell our skim milk powder at higher prices than EU and US dairy
companies in Global Dairy Trade events.
It is still pretty early in the season and a lot can change.

As always, there are some risks that we are keeping a close eye on, including current global
trade tensions – particularly Brexit, the US/China relationship, and the political instability in the
Middle East.

I want to finish by outlining the Board’s priorities for the year ahead.
First and foremost is delivering our Milk Price.
Alongside that we want to return to respectable earnings, which will in-turn lead to a recovery
in our share price.
We also want to return to paying dividends as soon as possible.
Led by our Co-operative Relations Committee, the Board is looking at improvements to the
Milk Price – specifically the Advance Rate and how we might get more money to our farmers
earlier in the season.
Any changes will be subject to the continued improvement of our balance sheet and the
protection of our credit rating.
We will continue with the implementation of our end-to-end strategy. Part of that is continuing
to look at our capital structure to ensure that it is still fit for purpose.
Our future capital structure requirements have been a consideration as we’ve finalised the
strategy and there is a small team from the Board and Management looking at it.
These discussions are critical to the future of our Co-op and for that reason, we won’t put a
timeline on the process.
It will take as long as it takes.
Finally, governance succession and development is part of the Board’s agenda every year.
Completing the process for Independent Director Simon Israel’s replacement is an immediate
priority for us.
Thank you.

FONTERRA CHIEF EXECUTIVE OFFICER’S ADDRESS
Today I’ll take you through the key points of our FY19 financial performance. But what I would
like to spend most of my time talking about is our new strategy, operating model, and where
our focus will be for the next 12 to 18 months as we continue to reset our business. I’ll then
hand back to John and we will be happy to take any questions.
Like John, I would like to start by acknowledging the tough year we had. We didn’t deliver the
results we wanted. And we are aware of the impact this is having on the unit price.
We needed to reset our business and therefore have made a lot of decisions. While some
were hard to make, all of them were necessary and were the right calls to set ourselves up for
future success.
I’m feeling positive about the changes we’ve made over the past year and am comfortable that
we are well-placed to meet our commitments.

Turning now to our headline numbers.
I won’t spend too much time on these as I’m sure by now you’re all familiar with them.
As you know, this year we made the call to reduce the carrying value of several of our assets
— in particular, DPA Brazil, Fonterra Brands New Zealand and China Farms. We also had to
take into account one-off accounting adjustments.
These totalled $826 million and took us from what would have been a modest profit by our
standards of $269 million, to a Net Loss After Tax of $605 million.
Our New Zealand Ingredients and Foodservice businesses improved, but this was offset by
challenges in some markets, which I’ll touch on shortly.
We made good progress on our business reset.
We significantly lowered our operating and capital expenditure, reduced debt and improved
our cash flow.
Despite this, earnings are not yet where they need to be, and this is shown in the unacceptable
return on capital of 5.8%.

Let’s go through the underlying performance and the impact of the adverse one-off items. I’ll
start on the left-hand side of this slide and work my way across.
We started from FY18 with $382 million in normalised NPAT. As I mentioned, our underlying
operating earnings were not where we need them to be, down $60 million on an after-tax
basis. This resulted in a FY19 Normalised NPAT of $269 million, which was equivalent to 17
cents per share.
Once we included the impairments and the total of these adverse one-off items, we had a loss
of $826 million. When we took into account the net loss attributable to minority interests, our
total reported net loss after tax was $605 million.

Looking at our underlying operating earnings.
We sold slightly more on a metric tonne basis, but our sales revenue was down 2% to $20.1
billion due to lower prices and our product mix.
We had improved margins in our New Zealand Ingredients and Foodservice businesses, but
this was offset by challenges in Australia Ingredients, Latin America and some of our
Consumer markets.
We made great progress and reduced our operating expenses by $185 million. Likewise, we
improved our cash flow and reduced debt.
However, given the disappointing earnings and significant one-off items, the Board made the
decision not to pay a dividend this year.

I want to go through some of our challenges.
Australia Ingredients gross margin was down from $77 million to $10 million. As I’m sure you’re
aware, Australia was impacted by higher milk prices in response to a competitive milk market,
and the ongoing drought conditions.

Prolesur, our Ingredients business in Chile, experienced strong competition for milk and
collections were down 16%. Our consumer business in Chile, Soprole, had a tough start but
finished the year positively. That said, we are watching the market instability closely.
From a China Farms perspective, we made progress on the prior year but far from where we
need to be, hence our earlier announcement to undertake a strategic review. This review is
now well advanced.
We measure our farms, and those of our Joint Venture, on an end-to-end basis and have
made progress - reducing our loss from $38 million to $30 million.

In FY19, we made a commitment to reduce our financial leverage and strengthen our balance
sheet.
With the announced divestments of foodspring and DFE Pharma we continue to make
progress towards reducing our debt as these two will contribute just over $600 million in sale
proceeds in the current year.
In addition to these announced divestments, we have a target to further reduce debt by an
additional $500 – 700 million.
This will primarily be achieved by improving our earnings, lowering our CAPEX, and making
some other divestments.
This results in our debt being back under 4 times our earnings, and on the way to our long-
term target ratio of 2.5 to 3.5 times our earnings. The credit rating agencies have supported
our plan to deleverage, and it gives us options for the future.
So, that covers off our financial statements. Now I’d like to look ahead at our new strategy and
focus for FY20.

Our new strategy recognises that at our heart we’re a co-operative, doing amazing things with
New Zealand milk to enhance people’s lives and create value for our customers and our farmer
owners.

It matches our strengths to customer needs by focusing on the areas in which we have a
unique competitive advantage. And it will see us focus on three measures of success —
healthy people, healthy environment, healthy business.
This is the right strategy for us, but it requires us to make some hard choices.
We will concentrate on five key product categories:
• Core dairy
• Paediatrics
• Sports & Active Lifestyles
• Medical & Healthy Ageing
• Foodservice
We will still be in Consumer and will focus on markets throughout Asia Pacific.
This is because the products we sell in these markets are made with New Zealand milk
and are similar to those we sell in our Ingredients business, so we can benefit from our
scale efficiencies and play to our strengths.
It does mean we will reduce our consumer product portfolio to those that create superior
value. In short, we will:
• Prioritise New Zealand milk
• Use milk components and non-dairy ingredients sourced from around the world
• Grow our sales of Sports and Active, Medical and Healthy Ageing, and Paediatric
ingredients
• Develop new Foodservice markets
• Only make consumer products where they create superior value
• Lift our research and development focus and spend
• Collaborate more based on intellectual property and skills
To do this we are going to prioritise three things:

• Innovation – where it creates value for our Co-op and our customers.
• Sustainability – to do what’s right and do what’s expected of us for the long-term.
• Efficiency – to create value from our unique scale and position in New Zealand.
I know the key question everyone wants answered is what’s going to be different?
A lot of what is different about this strategy boils down to two changes in the way we think.

The first is a focus on value.
We dropped our volume-based ambition early on. It’s helped us cut costs dramatically and
make better decisions day-to-day. Overall, we’ll be a leaner, more focused business, clear
about who we are, where we are going, and where we can win.
When we talk about value, we mean the value back to the Co-op.
For example, while consumer products may have a higher gross margin this does not
necessary translate to value given the higher spend needed on advertising and promotion.
Therefore, decisions will be made based on true bottom line value to the Co-op.
The second decision was that we don’t have to be all things to all people.
We are a New Zealand dairy farmers’ Co-op and we will be prioritising New Zealand milk. We
will be putting our research and development effort, energy and investment into the products
and places where we know we can win.
I want to be clear about what you can expect from us. We’ll be open and honest about the
challenges we’ll inevitably face along the way.

One example of how we are doing things differently can be seen in the recent launch of our
foodservice business in India with our partner Future Group.
This is a capital light partnership which combines our dairy knowledge and know-how, with
Future’s Group’s access to market, established customer base, and strong marketing and

distribution networks. Combine these two skill sets together and you get more than the sum
of its parts.
Through this partnership we will be exporting our Anchor Food Professionals products from
New Zealand to India, where demand for dairy is expected to grow at seven times the rate of
China over the next decade.
And the reason I raise this as an example, is because I believe it highlights the change in our
thinking.
In the past, we thought we needed to have physical assets on the ground in order to succeed.
We also had a wall of milk coming at us – which is not the case today.
Now, under our new strategy, we are looking to leverage our dairy know-how through
partnerships, which will allow us to exploit our intellectual property and enter markets that we
might not otherwise have had access to, and to do so in a capital light way. This is something
we are looking to do more of under our new strategy.

Turning now to what we’re expecting FY20 to look like.
We are resetting the business and transitioning to the new strategy.
The FY20 milk collection forecast is similar to last year. But after our recent milk price revision,
there is a higher forecast Farmgate Milk Price.
Our earnings forecast of 15-25 cents per share for FY20 is built on a forecast EBIT range of
$700-800 million. While this is down on last year, our forecast EPS is up reflecting lower
interest and tax.
To get here, we can’t repeat last year’s disappointing performance.
The fundamentals of dairy remain strong. The world wants more dairy, and there is a growing
middle class with high disposable incomes looking for premium products. We believe we can
create value from innovation, sustainability and efficiency. And our new strategy positions us
well to leverage this.

At the same time, the global economy is showing signs of slowing and we are seeing increased
trade tensions. Given our reliance on the international market, these are factors we continue
to watch closely.

Before I finish, I’d like to touch on our focus for the year ahead.
We have four key priorities that will help us take steps towards our goals of healthy people,
healthy environment and healthy business.
They are: Build a winning team by introducing and shifting to a new customer-led operating
model to support our new strategy.
Under our new operating model we will have three regional CEOs who will be better connected
to our customers and consumers. They will be supported by a leaner core group, led by the
newly created position of Chief Operating Officer. Last month I was pleased to announce that
Fraser Whineray will take up this role, and we look forward to welcoming him to the Co-op
early next year.
Support regional New Zealand. We will do this by injecting a further $10 billion into rural
communities through competitive milk price payments. So far this is tracking well, with our
recent revision of the forecast Farmgate Milk Price, injecting another $450 million into regional
New Zealand.
Reduce our environmental footprint. Through the Co-operative Difference, we will work with
our farmers so that a further 1,000 farms have a Farm Environment Plan, and we will prepare
emission profile reports for all. And we will continue to improve energy efficiency at our
manufacturing sites.
Finally, we will hit our financial targets. To do this we will:
• Improve our debt position so that our debt is no more than 3.75 times our earnings,
down from 4.3 times.
• Reduce our capital expenditure to no more than $500 million, which is down $100
million on last year.
• Achieve a gross margin in excess of $3 billion.

• And meet our earnings guidance of 15-25 cents per share
We will be able to share our progress when we report on our first quarter next month, but I’m
pleased to note that we have seen a good start to FY20.

I’ll now hand back to the Chairman, but just before I do that, I’d like to say that I’m feeling
energised and excited about the year ahead and about the future of our Co-op.
It’s been a tough year, but we are building the right team and laying the foundations for a
successful future.
We know we need to deliver, not only for you but for all New Zealand.
And I know I have 10,000 farming families and 20,000 employees behind me who are
determined to make that happen.
ENDS